10% deposit, what's the problem?

brizza

Afternoon all,

I'm coming cap in hand for some advice from the MSE great and good...

Yesterday I missed out on the second successive property where the reason given for going with a different bidder was that "the vendors were nervous about selling to a first time buyer with a 10% deposit".

This isn't something that I'd considered before. I had assumed that as a first time buyer, I'd be seen as a great candidate. In actual fact for both of these properties we had the highest offer on the table, but in each case they went with a lower bidder with a larger deposit. I'd assumed it'd be the opposite - we'd be able to negotiate a lower offer as we could move immediately.

What's the problem then? My guess is that they're worried that if something comes up in the survey we won't have the spare funds to sort it out and instead will be coming back to them for a price reduction?

Anything else you can think of?

And what do I do going forward? Tell them we've got 15% deposit instead?

Would be interesting to know if anyone else has been in a similar position. Or, I guess, if any sellers have been on the other side of fence and shied away from ten-percenters?

carolineb23

The first thing I would guess is that they'd be worried your mortgage application would be turned down due to you needing a 90% mortgage. There's been a fair bit in the media about them being more difficult to get as lenders criteria is a lot stricter that it was a few years ago. It's a bit harsh though, sorry you missed out.

ACG

At 10% your credit score needs to be pretty good as does affordability.

However, why are they even getting to know how much deposit you have? Go in with an agreement in principle for £50k and tell them the rest is a gift from your parents so you cant show bank statements for the remainder as they do not want to give out their personal info to estate agents.

lil_miss_insanity

I had an excellent credit score (according to the experian 'pick a number out the air' site) and good affordability, never missed a payment of anything, used overdrafts and credit cards responsibly with full repayment direct debit - still couldn't get a 90% mortgage. It's frustrating, but I understand sellers wariness, as if my mum hadn't helped out last minute I'd have had to back out of the purchase.

moneyistooshorttomention

Maybe someone with a larger deposit has more flexibility to "stump up the difference" if the house they hope to buy gets undervalued by their surveyor?

I know I felt happier personally knowing my buyer has a bigger deposit than that just in case. The "just in case" scenario doesn't seem to have come up and their surveyor valued my house in accordance with the agreed price and I got the impression that a bit more would also have "passed" too, but I was happier knowing that my buyer could probably have "stumped up the difference" if there had been an undervaluation and got themselves a bigger mortgage to balance out.

anotheruser

So let me get this straight:

You agree a price to buy/sell.
Surveyor comes round and values the house.
If he/she values the house significantly lower/higher than the buying/selling price, then the buying/selling price can change?

japmis

Get your mortgage agreed in principle (sometimes called AIP) and state this when conversing with the EA, it should help ease their concerns.

dtsazza

anotheruser wrote: »

So let me get this straight:

You agree a price to buy/sell.
Surveyor comes round and values the house.
If he/she values the house significantly lower/higher than the buying/selling price, then the buying/selling price can change?

Buying/selling price can always change, until contracts are exchanged.

But the relevant part here is that the amount the bank is willing to lend can change. Someone with a £20,000 deposit can get a 90% mortgage for a £200k property. If the bank's survey values it at £190k however, they're only going to lend £171k @ 90%, so the buyer would have to find an extra £9,000 from somewhere. (And chances are they won't, so the sale would fall through.)

Someone with a 20% deposit (i.e. £40,000) in the same situation would end up able to cover the difference. They would be on 84.2% LTV instead of the 80% they'd hoped for, but chances are the bank would still lend to them (albeit at a possibly higher rate).

So someone with just enough deposit to make 90% has no "wiggle room" to cover for unexpected events - which makes the whole process more brittle/likely to fail.

hazyjo

As above, why does the EA even know your deposit?! Just get an AIP.

10% isn't a huge deposit so I can understand why it makes some people a bit nervy, especially with banks pulling mortgages and valuers pricing low.

Suppose a lot depends on where you are. A 90% mortgage in London right now would probably be okay. In somewhere static or dropping, I'd be very cautious.

The vendors have probably lost buyers previously cos of mortgages being rejected. An AIP is far from a guarantee that you will actually get that.

Jx

witchy1066

dtsazza, are you saying if a house is valued at £190k instead of the 200k expected , that someone with a higher ltv deposit would pay over the survey valuation ?
maybe I have misunderstood ,

if I am putting in 10% or 50% I would not be happy to pay more than the house is deemed to be worth by my lenders

brizza

japmis wrote: »

Get your mortgage agreed in principle (sometimes called AIP) and state this when conversing with the EA, it should help ease their concerns.

Already done! Absolutely everything's lined up. Deposit in place, conveyancer ready, mortgage agreed in principle.

We're looking to borrow somewhere in the low £400k region, we are allowed to borrow up to £700kish.

I think moneystootighttomention has hit the nail on the head, which is the same fear we had, about the lack of flexibility if the survey comes back showing gremlins.